A debit card is a payment card used to access your bank account. You can use a debit card online, at point-of-sale terminals, ATMs and bank branches. Debit card transactions are deducted from your bank account balance.
“With a debit card, you’re accessing, via a card, money that’s in your bank account,” says Bill Maurer, director of the Institute for Money, Technology and Financial Inclusion at the University of California-Irvine.
How Does a Debit Card Work?
A debit card deducts transaction amounts from your account when you withdraw money or make a purchase. Debit cards only allow you to access the money available in your linked account, such as a checking account.
When you use your debit card for a transaction, the payment terminal or bank will verify you have enough funds to cover the transaction. You may need to enter a personal identification number, known as a PIN. Once the transaction is authorized, the funds are transferred from your account to pay the merchant or dispense cash at an ATM.
[Read: Best Checking Accounts.]
“When you use a debit card to make a purchase at a merchant or withdraw cash from an ATM, the funds are automatically deducted from your account balance,” says Ohan Kayikchyan, a certified financial planner and financial coach. “Ensure you have enough money in your checking account to cover your debit card transaction. Otherwise, the transaction can get declined by a financial institution.”
Note that if you select “credit” when paying with your debit card at a terminal, there will be a lag time of two to three days before the funds leave your account. The transaction could still be denied if your account has insufficient funds, or you may receive an overdraft charge.
How to Get a Debit Card
You can get a debit card by opening a checking account with a bank or credit union. You’ll need to provide personal and financial information, which may include your name, address, Social Security number and photo ID such as a driver’s license or passport. The bank may also ask about your income and employment status.
You need to be at least 18 years old to open a checking account, though individuals under 18 can have an adult serve as a co-owner on an account.
Once you open a checking account, you’ll typically get a debit card. You may initially receive a temporary card until your debit card arrives in the mail.
[Read: Best Savings Accounts.]
Kayikchyan says a prepaid debit card is another option if you can’t open a checking account. Prepaid debit cards come with money loaded directly onto the card and are not linked to a bank account. You can purchase these cards in stores and online. Keep in mind there may be fees when buying the card, making purchases or adding money to the card.
Debit Cards vs. Credit Cards and Checks
Debit cards look similar to credit cards, but the two have key differences — particularly where the funds come from. And though debit cards and checks both draw from your bank account, checks carry some risks.
Credit Cards
You can only spend what you have in your account using a debit card. With a credit card, which extends a line of credit for borrowing money, you can make purchases up to your available credit line. You are then responsible for paying back the amount you’ve spent — plus applicable interest and fees. You can also build credit with a credit card, which you can’t do with a debit card.
Debit cards can help you avoid overspending or accruing debt, as you can only spend available funds in your account. With less risk of debt than credit cards, debit cards can be a good option if you aren’t sure you can stick to your budget with a credit card.
Still, debit cards have a greater risk of fraud than credit cards because credit cards come with fraud liability protections. Maurer suggests turning off overdraft protection on a debit card — which entails using funds from another linked account (such as a savings account) to cover transactions — because a thief could drain your checking account and keep spending.
“With debit, it’s your money, and it’s tied directly to your bank account,” Maurer says. “If someone steals your card, they can start draining your bank account. Because it’s your money and not the bank’s money, it’s on you to take action and deal with any instance of fraud.”
Checks
Checks allow you to access money in your bank account just as debit cards do, but the payment process is more cumbersome and less secure. Instead of using a debit card with a fairly seamless payment process, you must write a physical check. Also, using a check can present more of a fraud risk than debit cards.
“Checks are risky insofar as your routing and account numbers are right there on the check with your legal name and address,” Maurer says.
[Read: Best CD Rates.]
Debit Card Fees and Rewards
Some banks charge a monthly maintenance fee for bank accounts, which you may be able to waive if you meet certain requirements, such as maintaining a daily minimum balance or setting up a direct deposit. Your bank account and associated debit card may also be subject to ATM, overdraft and foreign transaction fees.
Some debit cards offer reward programs, typically as cash back. Using debit card rewards, you may earn a percentage back on all purchases or may have the option to accept cash back offers from participating merchants.
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What Is a Debit Card? originally appeared on usnews.com
Update 11/25/24: This story was previously published at an earlier date and has been updated with new information.
